'Prime time' to invest in Europe

Chinese enterprises are finding lucrative reasons to move into Europe now, reports Bao Chang

Travelers get their first impression of a city from its airport. And as more Chinese tourists visit Europe, many are disappointed with the outdated transport facilities they encounter in the developed economies.

Now, Chinese investors are helping to give these facilities a facelift.

Beijing Construction Engineering Group Co said it will invest 12 million pounds ($19.4 million) to redevelop the United Kingdom's Manchester Airport. The project also involves the joint construction of a business district at the airport, in conjunction with the Greater Manchester Pension Fund.

The project, called Airport City, involves about 61 hectares, which will be turned into a complex featuring about 465,000 square meters of offices, shops and green space. It's also expected to create 16,000 jobs for local residents.

UK Chancellor of the Exchequer George Osborne said that his government will ensure that investment from China flows to all parts of the UK, since the nation's economic plan is about securing a recovery for all regions.

Osborne and London Mayor Boris Johnson recently made a five-day visit to China, in a move to promote bilateral ties.

"Europe's GDP has been weakened by the slump in fixed-asset investment in the region," said John Ross, the former director of Economic and Business Policy (London).

In the short term, Ross said, it will be hard to see an obvious rebound in Europe, given the weak capital inflows.

But money from China may offer some hope. Managing $3.66 trillion in foreign exchange reserves, China's State Administration of Foreign Exchange is reportedly seeking to diversify its investments. It's giving strong emphasis to opportunities in the real estate sector in the UK, French, German, Polish and Czech markets.

SAFE also is reportedly involved in the Beaugrenelle shopping center in Paris, in a deal that could involve at least 700 million euros ($966 million).

Opportune moment

"This is the best time for Chinese investors to tap into the European market," said Tong Jisheng, deputy general manager of Shanghai Construction Group.

The SCG has invested in and built several transformational projects in Europe, including the A2 road in Poland, since it entered the market in 2005.

By 2020, total investment in Europe could reach $500 billion, according to the Ministry of Foreign Affairs.

The Chinese dream, which aims to improve the nation's living standards, is also a dream that involves finding opportunities in Europe and improving the region's prospects.

During the "Go To Europe" Investment Forum recently held by the China Public Diplomacy Association in Shanghai, the European Union delegation urged China to explore the potential of Europe as a unified market and sign a comprehensive investment pact with the bloc.

"Although China has signed bilateral investment agreements with some European countries, it's not enough. We hope to establish a very comprehensive investment treaty ... to offer a unified investing environment to Chinese investors," said Michal Makocki, a representative of the EU delegation.

Trade ministers from the EU will discuss a plan by the European Commission to pursue an investment agreement with China at their meeting in Luxembourg.

China has signed bilateral investment protection agreements with several European countries, including the UK, Germany, France, Switzerland, Italy and Denmark.

"The fast growth of Chinese outbound investment will continue. Meanwhile, the field will be more diverse, and more will come from private enterprises, especially small and medium-sized companies," said Pascal Gondrand, France's investment counselor in China.

Almost 15,000 French citizens now work in France for Chinese companies. Big investors from China include Lenovo Group Ltd, ZTE Corp and Haier Group, which have established their European headquarters in Paris.

Smaller and lesser-known Chinese companies have also invested in France, with some entering the film, technology, healthcare and aviation sectors, according to Pascal.

France was China's largest investment destination in Europe in 2012, accounting for 21 percent of the total, followed by the UK and Germany, with 16 percent and 7 percent, respectively, according to the Ministry of Commerce.

"China's investment destinations are not spread equably through Europe. There's still the traditional sense of focusing on the UK, French and German markets," said Chen Xin, director of the economic section of the Chinese Academy of Social Sciences' Institute of Europe.

"We need to explore new markets. There are some fixed concepts about investing abroad, focusing on the developed financial industry in the UK, advanced manufacturing in North America, and the design and tourism fields in southern Europe.

"However, Europe is a very large area with much diversity, and that means lots of options. For example, Central and Eastern European nations offer a good entry point for China.

"They have high-quality but low-cost labor, and they provide access to the markets within the developed part of Europe," Chen added.

No speculation

With Chinese investors moving into Europe, some worry about their plans and motives.

"The investment attitude must be correct, without speculation and vulture-like behavior," said Cui Hongjian, director of the European section at the Institute of International Studies.

Chinese investors are strongly driven to seek bargains in Europe, where many companies are short on cash and governments are eager for foreign investment to boost their economies, according to Cui.

But if investors go in with the wrong ideas or bad information, the project won't work, he said.

One example of such a failure was the Chinese trade center project, a proposal intended to replicate the "Yiwu model" in northern Europe.

Yiwu, in Zhejiang province, is a global center of trade in thousands of small goods.

When visiting Switzerland five years ago for the acquisition of a vehicle parts factory, Yiwu-based merchant Luo Jinxing found that these products from China were selling for 10 times the original price.

He decided to invest and establish a Chinese trade town with 1,100 booths, plus a hotel. But work ground to a halt after two years.

Problems that included the rights to permanent residency, labor force benefits and funding shortfalls are thought to have doomed the project.

"The European market is very complex, so every company in every industry needs different solutions and strategies. Before investing in Europe, one must do careful, in-depth case studies on the market and investment. Understanding the policy environment is crucial for investment success," Cui said.

Some Chinese investors are not familiar with the language, culture, customs, laws, policies and regulations of their target markets. And staying within their own narrow circles is another problem, according to the Ministry of Foreign Affairs.

Still, looking at rising investing opportunities abroad, Chinese companies are deepening their international presence.

"Chinese investment in Europe has grown rapidly, but for China to become a successful and mature investor in the continent requires more time," said Ma She, deputy director-general of the department of European affairs at the Ministry of Commerce.

"The success of investments there depends not only on financial strength. It requires a combination of economic, social and cultural factors," Ma said.

Yang Ming, deputy general manager at Yingli Green Energy Holding Co Ltd's international sales branch, said he believes that intangible factors also play a role in gaining brand awareness and acceptance in developed markets.

Yingli's first success in Germany started with a soccer game. In 2006, a German company bought some photovoltaic components from Yingli for use in the World Cup stadium. But the container vessel carrying the shipment was hit by a typhoon.

After hearing of the situation, Yingli immediately offered to send another shipment at its own expense.

"Although the two sides ultimately split the air freight costs, Yingli's efforts impressed its German customer, which put up prominent display ads for Yingli inside the stadium," Yang said.